Govt faces uphill in meeting capex estimates in FY25

Meeting capital expenditure even to match the revised estimates during the current fiscal year is likely to be very challenging, data trends from the Controller General of Accounts (CGA) indicate. The interim Budget for the fiscal year 2025, presented on February 1, 2024, and the final Budget, presented on July 23, 2024, maintained capital expenditure at ₹11.11 lakh crore. However, the amount was revised to ₹10.18 lakh crore. Data from CGA now reveal that the government has managed to spend just about ₹7.57 lakh crore during April-January, which is a little over 74 per cent. This means that the government has to spend over 25 per cent or over ₹2.61 lakh crore during February and March, which will be difficult. Data for the 11-month period from the CGA shows that only two months recorded a monthly expenditure exceeding ₹1 lakh crore ₹1.13 lakh crore in September and ₹1.71 lakh crore in December. This calculation makes the average expenditure of over ₹1.3 lakh crore over two months highly challenging. However, the good news is that key infrastructure Ministries, including Road Transport and Railways, are well on track to meet their respective expenditure targets. According to Aditi Nayar, Chief Economist at ICRA, capital expenditure jumped by 51 per cent in January, which would augur well for economic activity in the current quarter.

The Government of India’s capex must grow by 15 per cent y-o-y in February-March 2025, on a high base, or record a monthly run rate of ₹1.3 lakh crore to meet the FY2025 RE. “A slight miss in capex relative to the target of ₹10.2 lakh crore for FY2025 can’t be entirely ruled out,” she said. Lower capital expenditure has an impact on gross capital formation, as such spending is expected to boost investment by the private sector. According to a research report by SBI, capital formation is projected to grow by 6.1 per cent in the current fiscal, down from 8.8 per cent in FY24. “The deceleration in gross capital formation from 32.6 per cent of GDP in FY23 to 31.4 per cent of GDP in FY24 is a matter of concern,” the report said. Private sector investment, which attained its peak of 25.8 per cent of GDP in FY23 (since FY13), has decelerated to 24 per cent of GDP in FY24. “We believe revival in private investment (particularly of private corporations) will be a major key to the future growth trajectory,” the report said. However, both public and government investment exhibited growth in FY24 as compared to FY23. Public sector investment reached an all-time high level of 8 per cent of GDP in FY24 (since FY12).For FY25, given the current trends, “we estimated both savings and investment to increase to 31 per cent and 32 per cent of GDP respectively,” the report said.